On June 8, 2026, the Supreme Court of India delivered a pivotal ruling that effectively concluded one of the country’s largest shareholder class actions by referring the matter to arbitration. This decision overturned two previous rulings by the company law tribunal, leaving unanswered the significant question of whether a class action representing approximately 40,000 shareholders can be arbitrated. The case in question, Jindal Poly Films Ltd v. Monet Securities Pvt Ltd, was not a dispute involving personal rights (in personam), but rather one involving rights affecting the public at large (in rem).
The Court’s Decision
The class action was filed under Section 245 of the Companies Act, 2013, representing about 40,000 shareholders. The plaintiffs, who held less than 5% of Jindal Poly Films, alleged that promoter-linked entities had acquired preference shares in a subsidiary at below fair market value, resulting in a financial discrepancy of over ₹2,500 crore. The tribunal’s extensive 61-page order, supported by an additional 29 pages from the appellate tribunal, emphasized the protection of both the company and its shareholders. This comprehensive analysis has now been set aside by a succinct three-paragraph settlement.
Consent and Arbitration
The absence of a formal arbitration agreement raises questions about the validity of the settlement. According to Section 7 of the Arbitration and Conciliation Act, 1996, a written arbitration agreement is typically required. Furthermore, the issue of subject matter arbitrability, a concept that is independent of party consent, remains unresolved. Indian law deems non-arbitrability as a defect that cannot be remedied.
Through cases like Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. and Vidya Drolia v. Durga Trading Corporation, a four-point test for non-arbitrability has emerged. Section 245 meets at least three of these criteria, indicating that it involves public interest and affects third-party rights, making it non-arbitrable. An arbitral award cannot bind an undefined class of 40,000 shareholders and other parties not part of the arbitration.
Lack of Safeguards
Mature legal systems require checks before concluding a class action, recognizing the fiduciary role of the class representative. For example, under Rule 23(e) of the US Federal Rules of Civil Procedure, courts must ensure settlements are fair and reasonable. Similar requirements exist in the UK, Australia, and Canada. However, Section 245 and its procedural rules lack such mechanisms, presenting a gap in Indian company law.
Unresolved Issues
The consent order does not establish a legal precedent, leaving critical questions unanswered. Can a Section 245 claim be subjected to arbitration? Can a party introduced later in the litigation waive the statutory rights of a class? What happens to the approximately 40,000 shareholders who were supposed to be represented? While Section 245 remains part of the law, its future applicability depends on whether future courts view this ruling as an exception or a benchmark.
Rishang Singh is an advocate practicing before the High Court of Allahabad.
